Hedge funds got their 'hedge' back in 2022: Morning Brief – Yahoo Finance

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Tuesday, December 27, 2022
Today's newsletter is by Alexandra Semenova, markets reporter at Yahoo Finance. Follow Alexandra on Twitter @alexandraandnyc. Read this and more market news on the go with the Yahoo Finance App.
Hedge funds have garnered a bad rap in recent years, and rightfully so — performance has been lackluster and the exorbitant fees collected by firms have been hard to justify.
Last year, hedge funds delivered broad-based annual returns of 10.3%, per the benchmark HFRI Fund Weighted Composite Index from Hedge Fund Research. The S&P 500 returned nearly 27% over the same period.
But 2022 may be a year of redemption for the industry, all thanks to smart bets placed by a few big outperformers amid changing market conditions.
Citadel, among this year's standouts, is on pace for its most profitable run ever. Its flagship Wellington fund reportedly gained 32% year-to-date through November, while the S&P 500 was down more than 14% over the same period. The firm is expected to return about $7 billion in profits to its investors this year.
At Citadel, performance was so good, in fact, CEO Ken Griffin paid out of pocket last month for roughly 10,000 employees and their families to take three-day trips to Disney World to celebrate.
The D. E. Shaw Group and Millennium Management are also poised for double-digit annual returns, gaining 23% and 10%, respectively, as of the end of November. And then there’s the Haidar Jupiter hedge fund, a global macro fund, which surged roughly 267% through October, according to Bloomberg.
More broadly, HFR's weighted composite index, a global, equal-weighted index of the largest hedge funds that report to the firm's database, has hedge funds down just -2.62% year-to-date-as of November against a 14.39% drop for the S&P 500 over that same period.
After the 2008-2009 Global Financial Crisis, easy money policies by global central banks kept money cheap, limiting dispersion in the equity market. Elevated dispersion – or a wide range of outcomes for an investment – is a key driver of hedge fund performance.
Joseph Burns, head of hedge fund research for iCapital, points out how this year changed that dynamic. An end to fiscal stimulus and tightening financial conditions has lifted the potential for performance dispersion and changed the tide for the industry.
"Rate increases make it likely that equity performance dispersion will increase, Burns said, "which should allow greater room for these active strategies to find opportunities and inefficiencies in the market."
Bill Ackman’s Pershing Square is on pace for a big comeback from a bleak start to the year. That is, if its momentum holds up. After an 8% gain in November, Pershing Square Holdings is down just 4.8% year-to-date, a noteworthy improvement from the 25% drop across the first half of the year.
A key part of the turnaround story was Ackman’s winning bets on rising interest rates through a series of hedges that earned Pershing about $2 billion this year and helped offset much of the losses from its equity portfolio. Those hedges have generated $5.2 billion since the onset of COVID in 2020, Pershing Square told investors in a call last month.
Hedge fund manager Bill Harnisch, chief investment officer at Peconic Partners, told Bloomberg he credited the firm’s 29% return this year to a winning call on inflation 15 months ago.
Also making the case for hedge funds were their big returns this year for retirees at a time when a rout across traditional stock and bond allocations battered pension portfolios.
The Teacher Retirement System of Texas, one of the biggest pension plans in the U.S. and a prominent hedge fund allocator, is a good example. The system lost 2.3% for the fiscal year ended June 30, besting the median 5.1% loss seen by its peers, the Wall Street Journal reported, thanks to a 9.4% return from hedge funds Man Group, Systematica Investments, and Citadel.
To be sure, however, some hedge funds are in the throes of a dismal year.
Tiger Global Management, Chase Coleman’s tech-focused firm, is said to be down 54% in 2022. Melvin Capital, once a top Wall Street firm, shuttered after losses this year added to the billions erased during the meme stock saga.
And though the success of hedge funds in 2022 is concentrated among a few big-name winners, the year is still likely to mark a much-needed turning point for an industry that’s been harshly criticized over the past decade.
In 2007, Warren Buffett famously bet that an unmanaged, low-cost S&P 500 stock index would outperform a group of hedge funds over the 10-year period from 2008 to 2017 — and he was right. He’d win the bet again if he'd placed it for the past 10 years, too.
After a decade-long bull market, it became easy to argue that stocks “always go up,” so there’s no need to shell out the infamous “2 and 20” charged by the hedge fund industry.
But the next 10 years might be different.
Much of Wall Street sees stocks going nowhere next year. And BlackRock, the world’s largest asset manager, has warned about a forthcoming "malaise" for global market and the economy.
That’s where hedge funds may continue to come in.
This year’s quick and sustained downturn across asset classes seems to have brought the “hedge” in “hedge fund” back in a big way.
And with Wall Street not preparing for a new bull market anytime soon, these allocations may have re-asserted their case for a place in portfolios with a standout 2022.
Economy
8:30 a.m. ET: Wholesale Inventories, month-over-month, November Preliminary (0.5% during previous month)
8:30 a.m. ET: Advance Goods Trade Balance, November (-$96.8 billion expected, -$99.0 billion during prior month)
8:30 a.m. ET: Retail Inventories, month-over-month, November (-0.1 expected, -0.2% during prior month)
9:00 a.m. ET: FHFA Housing Pricing Index, month-over-month, October (-0.6% expected, 0.1% during prior month);
9:00 a.m. ET: S&P CoreLogic Case-Shiller 20-City Composite, month-over-month, October (-1.40% expected, -1.24% during prior month)
9:00 a.m. ET: S&P CoreLogic Case-Shiller 20-City Composite, year-over-year, October (8.20% expected, 10.43% during prior month)
9:00 a.m. ET: S&P CoreLogic Case-Shiller U.S. National Home Price Index, year-over-year, October (10.65% during prior month)
9:00 a.m. ET: Dallas Fed Manufacturing Activity, December (-14.4 during prior month)
Earnings
No notable reports scheduled for release.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
The IRS is delaying the new $600 reporting threshold for 1099-K tax forms.
The recession drum beats on, interest rates are rising, and the stock market has taken a tumble, and yet retail sales have risen 6.5% in the last 12 months, trailing a 7.1% increase in the cost of living. The personal saving rate — meaning personal saving as a percentage of disposable income, or the share of income left after paying taxes and spending money — hit 2.4% in the third quarter from 3.4% in the prior quarter, the Bureau of Economic Analysis said. Are people buying stocks during a bearish market, and/or have they run out of their pandemic-era savings?
Judge Lewis Kaplan has replaced Judge Ronnie Abrams, who recused herself because of a potential conflict of interest.
Yahoo Finance Live anchors Julie Hyman and Jared Blikre discuss Fifa World Cup becoming Google’s top search in 2022.
For many investors, 2023 might be the first time to consider bonds in their adult lives. That's the takeaway from an insight published recently by Goldman Sachs, which forecasts that 2023 bond yields will exceed stock dividends. This, the paper … Continue reading → The post Goldman Forecasts The Best Bond Market In 14 Years appeared first on SmartAsset Blog.
U.S. stocks twisted and turned Tuesday morning as Wall Street returned from the long holiday weekend to barrel through the final four trading days of 2022.
(Bloomberg) — Germany’s government is confident that a key refinery that provides Berlin and swaths of the eastern part of the country with fuel is well positioned to keep running even as the nation is set to begin its ban on Russian oil in the coming days. Most Read from BloombergSouth Korea Sends Drones to Kim Jong Un’s Airspace in Unprecedented MoveRussia Says Ukraine Must Surrender Even as Putin’s Army RetreatsChina Reopens Borders to World In Removing Last Covid Zero CurbsSouthwest Air Fac
The impact China's economy re-opening is having on stocks shows investors are both optimistic and cautious about the fortunes for the world's second-largest economy.
Here are the big stories moving EV (electric vehicle) stocks today.
Cathie Wood makes big bets on potential huge winners. But Ark Invest's top 10 holdings, including Tesla and Roku, have tumbled in 2022.
Sam Bankman-Fried said in an affidavit he bought Robinhood shares with funds borrowed from Alameda. The admission throws a wrinkle into a lawsuit from crypto lender BlockFi, which says it was promised the shares as collateral against a loan taken out by Alameda.
Shares of Southwest were under pressure on Tuesday after a wave of cancellations over the holiday weekend due to inclement weather stretched into the week.
Dozens of changes are coming to America's retirement landscape.
Berkshire Hathaway Inc CEO Warren Buffett once explained one of the metrics he watches for a reversal in the housing market is a reduction of housing starts. The Oracle of Omaha said in 2010 that sometimes a “bad number” for housing starts is a good thing for the market — in this case, he was referencing a cool housing market in which supply outstripped demand. The only way to solve that was to create more demand than supply by reducing the number of newly built homes. While the macro situation
A busy travel day for post-holiday flyers was complicated on Monday as thousands of flights were cancelled nationwide, including dozens at the Minneapolis-St. Paul International Airport.
Jurgen Klopp praised 18-year-old Stefan Bajcetic's attitude and ability after he scored his first senior goal to seal a 3-1 win for Liverpool at Aston Villa on Monday.
With the market in a downturn, it's no secret bonds haven't been the hero many investors were expecting in 2022. Typically when stocks are down, bonds are where most investors flock to. But not this time. However, that doesn't mean … Continue reading → The post Morningstar Says These Alternative Funds Can Help Protect Investors From Volatility appeared first on SmartAsset Blog.
The worst may be over for the stock market for this cycle, but many economists see more pain ahead for 2023, including a possible recession that will create poor financial-performance comparisons for companies and send stock prices even lower. Greg Adams, director of quantitative and risk management at fund manager Alger, recommends that investors focus on companies with solid balance sheets and strong cash flow to endure tough times. Alger is based in New York and has $26 billion in assets under management.
In what will be great news before the end of the year for small business owners and millions of Americans, the Internal Revenue Service (IRS) announced it would delay the implementation of the tax…
The Dow Jones Industrial Average turned lower after economic data. Tesla dived on a report that the EV giant will run a reduced production schedule at its Shanghai plant in January.

source